Gold exchange traded funds (ETFs) continued losing sheen as an investment class with investors pulling out over Rs 300 crore from the instrument in April- August of this fiscal, preferring equities over them. Trading in gold ETF segment has been tepid during the last four financial years. It has witnessed outflows of Rs 775 crore in 2016-17, Rs 903 crore in 2015-16, Rs 1,475 crore in 2014-15 and Rs 2,293 crore in 2013-14. On the other hand, equity and equity-linked saving scheme (ELSS) saw an infusion of more than Rs 61,000 crore during the first five months (April-August) of the current financial year. This included an investment of over Rs 20,000 crore in last month alone.
Stock markets have been on an upswing, touching new highs this year. According to Vidya Bala, head of MF Research at Fundsindia.com, gold is losing steam as an investment asset class due to gradual rate hike in the US and a possible squeezing in Europe by 2018. “This is because, when debt as an asset delivers higher yields, gold, which has no underlying fundamentals, tends to under perform,” she said.
Gold ETFs are passive investment instruments that are based on price movements and investments in physical gold. “While demand from India has traditionally buttressed gold prices globally, sound rally in the Indian equity markets has meant that gold as an asset class has not been favoured. The global rate tightening and a strong Indian equity market may mean a sober outlook for gold,” Bala added.
Further, demonetisation and lower gold price from a strengthening rupee has kept its prices low although imports of the metal shot up, Bala said. According to the latest data available with Association of Mutual Funds in India (Amfi), a net sum of Rs 314 crore was pulled out in 14 gold-linked ETFs during April-August period of the ongoing financial year, as compared to Rs 462 crore in the same period of the last fiscal.
The outflow meant assets under management (AUM) of gold funds plunged to Rs 5,189 crore at August-end from Rs 5,480 crore at the end of March. Withdrawal of Rs 66 crore was seen in April this year, Rs 71 crore in May, Rs 81 crore in June, Rs 38 crore in July and another Rs 58 crore in August.
Gold ETFs have continuously been registering withdrawals. It saw an inflow of Rs 20 crore in October 2016. Prior to that, an inflow of Rs 5 crore was witnessed in such instruments in May 2013.